Some married parents could save this year by filing separate tax returns
Saturday, April 16, 2022
Filing status is one of those tax matters that seems so simple, but which often trips up taxpayers in real life.
As noted (shameless plug warning) in my 5 filing status choices item for the April Tax Tips page, most folks' status stays the same from tax year to tax year.
But a change (or two, or more) in your personal situation could mean you need to revisit how you file your return.
The head of household (HoH) status is a frequent source of confusion. Here, an unmarried person takes care of the needs of dependents. This is commonly used by the parent who gets primary custody of minor children after a divorce.
However, you also might be a HoH filer if you're taking care of an older person and meet the Internal Revenue Service dependent guidelines here.
Regardless of the age of your qualified dependent, if you file as single taxpayer when you could file as HoH, you're cheating yourself of some tax savings.
Married filers' other status option: This filing season, another filing status matter has come into play thanks to, what else, COVID-19.
Some married taxpayers this year have been filing separately in order to avoid phaseout of coronavirus-prompted recovery rebates and enhanced child tax credits, wrote Peter J. Reilly, CPA and Forbes contributor in a recent online column for the magazine.
"I will say that there are some pretty complicated computations," acknowledges Reilly, a longtime social media pal (@peterreillycpa) and valuable member of #TaxTwitter. "But it is not rocket surgery and the reports I have gotten indicate that most software will split returns, although there will probably be some sort of futzing required beyond pushing a button."
And, he adds, "I'm going to go out on a limb and say that if you have kids and Adjusted Gross Income between $150,000 and $400,000, you really need to be looking at this. To be honest I am very uncertain about the upper limit. Just run the numbers. If you haven't filed yet (It is April 10 as I write this), get an extension, so you are not doing things in a rush."
This apparently overlooked filing status choice vis-à-vis some new COVID tax benefits earns Reilly's article "Married Couples May Be Able To Save Money By Filing Their Taxes Separately. Who Is Missing Out?" this weekend's Saturday Shout Out.
He offers a closer look at where choosing separate instead of joint return filing could help couples, when it could hurt them, and he includes always welcome examples.
Enjoy Reilly's column and, if your filing status circumstances warrant and you've yet to file or are on extension, look into making a change to a status that could save you some tax dollars.
You also might find these items of interest:
- 6 big life events and the role taxes play
- Determining child-related tax breaks when you're divorced
- 6 signs married couples should consider separate tax returns
- Tax credit for other dependents can help families with older kids, aging parents
Thanks for the shout out. I would never have picked up the story without #TaxTwitter. I do think it is underreported and it will turn out that a lot of people missed out.
Posted by: Peter J Reilly | Saturday, April 16, 2022 at 03:44 PM